Berkshire threaded fasteners company

1) Because the 300 series showed the highest losses in the first six months in 2000, if the company had dropped the 300 series as of January 1, 2000, what effect would that action have had on the profit for the first six months of 2000?

Answer:

Considering how we define variable and non variable costs, even if the company does not produce 300 series they should pay the fix cost.

With reference to exhibit 2 first we define the nature of different cost and calculate the total cost while not producing, which only includes non variable cost, shown in below table.

As we can see if the company did not produce 300 series in the first half of the year 2000 they would have faced a lost of 691,000 USD. While at production level of 501.276 units, the loss generated has been 115,000 USD. As a result total loss of the whole production will increase to -661,000 USD instead of the current loss of 85,000 USD.

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USD Toreros Cheerleaders

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Therefore the company has made the right decision to produce to prevent higher levels of loss.